Canada gives struggling oil sector C$1.6 billion boost

WINNIPEG, Manitoba (Reuters) - The Canadian government said on Tuesday that it would spend C$1.6 billion ($1.19 billion), mostly through loans, to assist the country’s oil and gas industry, which has struggled to move energy to U.S. markets due to full pipelines.

FILE PHOTO: Canada's Infrastructure and Communities Minister Amarjeet Sohi speaks during Question Period in the House of Commons on Parliament Hill in Ottawa, Canada, December 8, 2015. REUTERS/Chris Wattie

Natural Resources Minister Amarjeet Sohi said in Edmonton, Alberta, that the aid package would include C$1 billion for energy exporters to invest in new technologies, boost working capital or find new markets.

Canada is producing a record 4.9 million barrels of oil per day this month, according to National Energy Board estimates, but pipeline capacity has not expanded as quickly to move crude to U.S. refineries. The bottlenecks have resulted in steep price discounts.

The federal aid package also includes C$500 million in commercial financing spread over three years to help high-risk oil and gas companies weather current market conditions, Sohi said. Another C$100 million will go toward energy projects through an innovation fund, and C$50 million will fund projects that involve reducing environmental damage from resource extraction.

The funds will stabilize struggling oil companies, but they really need greater access to markets, said Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors.

The struggles of the oil sector, concentrated in the western province of Alberta, have generated rallies in the past month demanding that Ottawa do more to help. Prime Minister Justin Trudeau’s Liberal government bought the Trans Mountain pipeline in the summer with plans to expand it, but a Canadian court quashed government approval of the project.

This month, Alberta Premier Rachel Notley took the rare step of ordering oil curtailments amounting to 325,000 barrels per day, starting in January, to reduce the province’s glut.

Small oil producers will benefit from Ottawa’s support package, although it is “cut and paste” from federal aid for other sectors, Notley told reporters in Calgary.

“It’s a start, but offering Alberta industry the opportunity to go further in debt is not any kind of long-term solution.”

Both Trudeau and Notley face elections next year and the oil industry’s problems pose a political liability. The Canadian economy is projected to grow by 1.9 percent next year, more slowly than this year’s 2.1 percent pace, partly due to weak energy investment, the think-tank Conference Board of Canada said.

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Dan Grebler and James Dalgleish